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Andre's Hair Stylling: determine the annual break-even point, operating income (based on number of haircuts) and more...

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Andre has asked you to evaluate his business, Andre's Hair Stylling. Andre has five barbers working for him. (Andre is not one of them.) Each barber is paid $9.90 per hour and works a 40-hour week and a 50-week year, regardless of the number of haircuts. Rent and other fixed expenses are $1,750 per month. Hair shampoo used on all clients is .40 per client. Assume that the only service performed is the giving of haircuts, the unit price of which is $12. Andre has asked you to find the following information.
Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.
Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your answer.
What will be the operating income if 20,000 haircuts are performed? Show calculations to support your answer.
Suppose Andre revises the compensation method. The barbers will receive $4 per hour plus $6 for each haircut. What is the new contribution margin per haircut? What is the annual break-even point (in number of haircuts)? Show calculations to support your answer.

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Find the contribution margin per haircut. Assume that the barbers' compensation is a fixed cost. Show calculations to support your answer.

Contribution margin equals to the difference between sales price and variable cost:
CM= contribution margin
SP = sales price
VC= variable cost

CM = SP - VC
SP = $12 /hr
The only variable cost is the amount paid to a barber per haircut :
VC = $ 9.9/hr
So our contribution margin per haircut would be :
CM= 12-9.9 = $2.1/hr

Determine the annual break-even point, in number of haircuts. Support your answer with an appropriate explanation. Show calculations to support your ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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